Good News! RBI cuts repo rate by 25 points; now new loans will be cheaper
MUMBAI: In the face of global uncertainty brought on by the trade war, the Reserve Bank of India has lowered the repo rate by 25 basis points and promised to maintain the banking system’s excess liquidity, making home loans and other borrowings more affordable.
The monetary policy committee (MPC) unanimously decided to shift the monetary policy from neutral to accommodative and lower the repo rate, or the rate at which the RBI loans to banks, from 6.25% to 6%. The central bank promised that future decisions will either drop rates or remain unchanged, and the rate cut follows a 25 basis point cut in February.
RBI governor Sanjay Malhotra also updated the growth and inflation projections for 2025–2026 by 20 basis points, to 6.5% and 4%, respectively, in addition to announcing the choices. Malhotra stated at a press conference that the objective was to guarantee excess liquidity up to 1% of bank deposits, or approximately Rs 2.3 lakh crore, in contrast to the existing liquidity surplus of Rs 1.5 lakh crore.
Given the stifling effect of US President Donald Trump’s tariffs on the world economy, Malhotra stated that he was more worried about how tariffs would affect growth than inflation.
Malhotra asserts that the economy will need time to adjust to the RBI’s rate-cutting measures. “When we raised the repo by 250 basis points, it took 6-9 months for the interest rates to decrease in response to the policy repo rate decrease.”